Silver demand expected to fall, with the one exception: jewelry

Ample supplies, due to increased mine production and the sale of stocks, outweighed sharp spurts in demand last year, holding down the price of silver, the Financial Times reported.

 

However, just as supply issues begin to look more favorable in the current year, demand could tail away in key areas, according to the annual World Silver Survey, released by the US-based Silver Institute.

 

The saving grace for silver demand is jewelry, according to the report.

 

The report says increased use of silver in industrial applications was the ”prime driver” behind the rise in the total demand last year. Overall, world silver fabrication demand grew by more than 5%, while use in industrial applications, such as semiconductors and cellular phones, rose by 11% to 378 million ounces.

 

But these areas are being seriously affected by the US economic slowdown. Philip Klapwick of Gold Fields Mineral Services, which compiled the report, said industrial applications demand will slow in 2001 and could be weaker than last year.

 

”We’re not going to see 11% growth this year. It will be lower-and possibly not just the growth rate. The actual number [378 million ounces] could fall a bit,” he said, the Financial Times reported.

 

Mr Klapwick said slower economic growth trends could also affect silver’s use in photography but was more upbeat about jewelry.

 

In 2000, jewelry and silverware fabrication rose by about 3%, and Mr Klapwick suggested that current price levels, coupled with some ”trading down” from gold products by end-customers, could help sustain demand in 2001. ”We’re hearing some very positive noises from India,” he said, the Financial Times reported.

 

The report estimates that mine production rose by almost 7% in 2000, with global output reaching 589.4 million ounces. This was augmented by significant sales of bullion stocks-notably by China, where the survey estimates that sales were just below 58 million ounces.

 

The survey plays down suggestions that investor Warren Buffett was a significant factor in the market. ”The balance of evidence suggests that the stocks famously held by Warren Buffett were not among [those sold in 2000],” it says, citing ”strong anecdotal evidence” that his position was largely intact early in 2001, the Financial Times reported.

 

The survey suggests supply trends could improve in 2001: ”This year, there is a possibility that some of the supply side pressure could ease. It is conceivable that Chinese sales will diminish further. Also, we doubt that growth in mine production will be repeated on last year’s scale,” it says.